Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.
Boston University economist Larry Kotlikoff has spent every week, for over two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.
Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets of Maximizing Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) will be published in February by Simon & Schuster.
Larry took a break from answering your questions this week to devote his column to a recent, troubling change in Social Security’s manual. The change, while small, and the details, while complicated, are incredibly important because they affect the amount of money Americans who currently receive disability benefits will be able to collect in their lifetimes. And although the Social Security Administration probably never intended to be discriminatory, Larry argues that this rules change treats disabled Americans like second class citizens.
If you are one of the nearly 9 million Americans receiving Social Security disability benefits, you should be personally outraged by the terribly unfair action Social Security bureaucrats took on Dec. 23.
What happened on that day?
Social Security made it essentially impossible for recipients of disability benefits to collect the same full auxiliary benefits (spousal, widow, divorced spousal, and divorced widow(er)) benefits that the rest of us can collect between full retirement age (typically around 66) and 70, while allowing our own retirement benefits to grow.
Before explaining the precise machination Social Security undertook to discriminate against the disabled, let me provide four background points.
GOT SOCIAL SECURITY QUESTIONS?
First, disability benefits automatically convert to retirement benefits at full retirement age unless you actively choose to withdraw that conversion.
Second, you can’t get a full auxiliary benefit upon reaching full retirement age if you have filed or have been forced by Social Security to file (through that conversion) for your own retirement benefit.
Third, if you have filed, whether voluntarily or not, you will be given an “excess,” not a full auxiliary benefit.
Fourth, for most workers, including most disabled workers, excess auxiliary benefits will be small or zero.
So what did Social Security do, seemingly in the dead of night, on Dec. 23 when many Americans were preparing for Christmas? They rewrote a provision of their Program Operating Manual System (POMS). And their rewrite, which is written in as obscure a manner as possible, forces all disabled workers reaching full retirement to file for their retirement benefits unless they pay back every penny they ever received in disability benefits. That’s not something most disabled workers are able, let alone eager, to do.
Is There a Lot of Money at Stake Here?
There can be.
Take Sally, a hypothetical disabled widow just reaching age 66 (her full retirement age). She has a widow’s benefit of $15,000 and a full retirement benefit of $15,000. Under a reasonable reading of the original POMS provision, Sally could withdraw the conversion of her disability benefit into her retirement benefit; in other words, she could avoid being forced to file for her retirement benefit. Doing so would leave Sally free to collect her full widow’s benefit until 70. At that point, she could collect a higher retirement benefit than she could have had she taken it at 66. The benefit would equal $19,800 (measured in today’s dollars) — 32 percent higher thanks to Social Security’s delayed retirement credit.
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But under the rewrite of the provision, the only way for Sally, who I’ll assume has been disabled for 20 years, to prevent herself from being forced to file for her retirement benefit at full retirement age is to pay back her disability benefits. That’d come to $300,000 — 20 times her annual $15,000 in benefits.
Now, you might ask, can’t Sally suspend her retirement benefit until 70? Wouldn’t that allow her to collect her full widow’s benefit between 66 and 70? No, she can’t suspend. To suspend a benefit you first need to have filed for it. And, remember, the act of filing for your retirement benefit precludes you from receiving full auxiliary benefits; you’re stuck with only excess auxiliary benefits. And in Sally’s case, her excess widow’s benefit is zero.
Hence, Social Security’s surreptitious move, which occurred with no public debate, no new legislation from Congress, and no public disclosure, will cost Sally $60,000 in benefits she could have been receiving.
This obviously isn’t fair to Sally or anyone else who is now disabled. Nor is it fair to those who may become disabled. That’s all of us.
Now, let me show you precisely what the provision — regulation number 0200206005 — said before and after Social Security changed it.
Here’s the original version:
In cases involving automatic conversion (e.g., DIB [disability insurance benefit] to RIB [retirement insurance benefit] conversion at FRA [Full Retirement Age], wife’s benefits converted to mother’s benefits without an additional application), if the beneficiary requests in writing not to receive the new benefit, treat the request as a request for WD [withdrawal]. Approve the request if the conditions for approval of a WD are met, regardless of whether the conversion has been made.
Here is the rewritten version:
In cases involving automatic conversion (e.g., DIB [disability insurance benefit] to RIB [retirement insurance benefit] conversion at FRA [Full Retirement Age]), if the beneficiary requests in writing not to receive the new benefit, treat the request as a request for WD [withdrawal] of the application (i.e. DIB application for a RIB conversion). Approve the request if the conditions for approval of a WD are met, regardless of whether the conversion has been made. Please note that the condition for repayment of benefits that were awarded before the conversion occurs would apply as per GN 00206.005A.2.
Let me help you see the key change made to this gobbledygook. In the original version, the term WD (wtihdrawal) seems to reference a request to withdraw the conversion. Alternatively, it could be read as the withdrawal of the retirement benefit to which Sally’s disability benefit was being converted. Under either interpretation, Sally collects a full divorcee widow benefit for four years.
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But in the rewritten version, WD is interpreted to mean the withdrawal of the disability benefit itself. And withdrawing one’s disability benefit means paying back all disability benefits received to date. That’s the significance of the last sentence.
The new language also says, in effect, that filing for a disability benefit is equivalent to filing for a retirement benefit. How can that be? The Social Security manual (POMS) explicitly denies that receiving disability benefits triggers “deeming” — when filing for one benefit forces you to file for another. And nothing on the application form for disability benefits suggests to applicants that they’re jointly filing for a retirement benefit, even one that will come in the future. Indeed, the official notice that your application for disability benefits has been accepted makes clear that only the disability benefit, and no other benefits, is being awarded.
Why Is Social Security Discriminating Against the Disabled?
Many people, including many people inside Social Security, think that collecting a full auxiliary benefit while letting your own retirement benefit grow is a form of double dipping. I can make that case.
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But I can also make the case that we pay (actually, our employer transmits) 12.4 percent of our gross earnings each year we work (up to the $18,500 covered earnings ceiling) to Social Security to provide all sorts of insurance benefits beyond just retirement benefits. These include disability benefits, spousal benefits, divorcee spousal benefits, child benefits, survivor child benefits, mother and father benefits, child-in-care spousal benefits and parent benefits.
The Social Security bureaucrats who doctored the key provision are implicitly claiming that all these other benefits are there for a purpose, while full auxiliary benefits for disabled workers are not allowed, even though the original version of the provision strongly suggested otherwise.
And Now for the Rest of the Story
POMS 0200206005 was written, as it was, to be fair to the disabled. But, as with so much in Social Security, hardly anyone knew the disabled apparently had the same option as everyone else to collect full auxiliary benefits. I personally knew nothing about this provision until I started asking Jerry Lutz, the long-time former Social Security technical expert who reviews all of my columns for accuracy. (Paul Solman and I thank him enormously for that service.)
As soon as Jerry told me that the disabled could withdraw the automatic conversion and take a full auxiliary benefit, I realized it was a big deal and wrote about it.
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In March 2013, I heard from a lovely lady from Holyoke, Massachusetts, whom I’m calling Ann to protect her identity. Ann receives disability benefits. She told me she was divorced (after a 10-year-plus marriage) and wanted to withdraw the conversion of her disability benefit into her retirement benefit upon reaching full retirement age in December. Her goal was to collect a full divorcee spousal benefit prior to taking her own retirement benefit at 70.
But when she applied, Social Security’s Holyoke and Springfield offices gave her the run around. I immediately called Jerry, and he suggested having her cite the POMS 0200206005 provision to Social Security. (I wrote about Ann’s situation in this column, and updated readers on her case two weeks later.)
After multiple interactions with Social Security, some unpleasant, the situation seemed to be saved. Ann formally filed on Dec. 12 to withdraw the conversion and requested to receive just her full divorcee spousal benefit.
Eleven days later, someone at Social Security changed POMS 0200206005. Maybe this was in response to Ann’s filing and my columns. Maybe not.
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Meanwhile, Ann received her first retirement benefit check at the end of December with no explanation of what had happened to her claim. For all we know, her retirement benefit check may stop. She may now get a bill to repay years of disability benefits since her application to withdraw a conversion is now being construed as an application to withdraw her disability benefit. Remember, that means paying back all disability benefits received, in her case, for decades.
Why Did This Happen?
I wanted to know what was going on here and sought reactions, first from Jerry, the former Social Security technical expert. He knows the POMS and other Social Security rules inside and out. This is what he had to say, via email:
SSA will say that the rewrite is merely a clarification of existing policy. To my mind, there is no justification for the ‘new’ policy that they implemented by the rewrite of POMS GN 00206.005.B.4.
Based on the rewrite, SSA is saying that an application filed for DIB (disability insurance benefit) filed at any age is also an application for RIB (retirement insurance benefit) . In other words, you are ‘deemed’ to be filing for RIB at FRA, even if you file for DIB at age 20, for example. However, section F.2.b of GN 00204.020 specifically states that conversion of DIB to RIB is not a deemed filing situation.
IMHO, the real explanation is that you publicized something that SSA considers to be a loophole, and they took administrative steps to close it by rewriting POMS.
I also sought a response from the Social Security Administration. One of their top policymakers, Marianna LaCanfora, claimed, as Jerry forecast, that the rewrite was just a clarification of existing policy. The key part of her email follows:
The rules on automatically converting an individual from disability benefits to retirement benefits have been in place for decades, and are firmly rooted in statute and regulation, as shown below.
The Act (Sec. 202) clearly states that “Every individual who—
- is a fully insured individual (as defined in section 214(a)
- has attained age 62, and
- has filed application for old-age insurance benefits or was entitled to disability insurance benefits for the month preceding the month in which he attained retirement age, shall be entitled to an old-age insurance benefits.
Our regulation (§404.310) is more specific, it states: “When you attain full retirement age, your disability benefits automatically become old-age benefits”. Therefore the conversion is not optional, as it derives from the DIB application.
Here’s my reaction. Everything Marianna says here about Social Security’s provisions simply verifies that the conversion of the disability benefit to the retirement benefit will occur automatically.
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But her last sentence — “Therefore the conversion is not optional, as it derives from the DIB application” — is Marianna’s own interpretation of the law. It’s not the law. There is nothing in the law that explicitly rules out withdrawing the conversion. Nor is there anything in the law that explicitly rules out withdrawing the retirement benefit after the conversion.
So here we have Marianna, a Social Security policymaker, and not actual statute, telling us that the conversion is not optional. But it seems some other Social Security bureaucrat – the one who wrote the original version of the POMS – felt otherwise.
Time for Congress to Step In
Whether today’s Social Security bureaucrats considers this to be a loophole or not, it’s not for them to decide. Last we the people knew, it was Congress, not Social Security bureaucrats, who decided who should be paid what benefits and under what circumstances. The fact that benefits need to be cut or taxes raised, or both, to keep Social Security solvent does not justify treating the disabled like second class citizens.